Lenovo Says RIM Bid Among Options to Boost Mobile Unit

A Lenovo Group Ltd. computer at an International Consumer Electronics Show (CES) in Las Vegas. Photographer: Daniel Acker/Bloomberg

Jan. 25 (Bloomberg) -- Lenovo Group Ltd. is assessing
potential acquisition targets and strategic alliances, including
a deal with BlackBerry maker Research In Motion Ltd., as the
second-largest producer of personal computers tries to bolster
its mobile-device business.

“We are looking at all opportunities -- RIM and many
others,” Chief Financial Officer Wong Wai Ming said yesterday
in an interview at the World Economic Forum’s meeting in Davos,
Switzerland. “We’ll have no hesitation if the right opportunity
comes along that could benefit us and shareholders.”

RIM began a review of its strategic options last year after
losing market share to smartphones such as Apple Inc.’s iPhone
and Samsung Electronics Co.’s Galaxy, raising speculation that
it could be a takeover target. Beijing-based Lenovo, which
bought International Business Machines Corp.’s PC unit in 2005,
is considering acquisitions and adding new products as
competition from tablets hampers profit growth.

“Long term, we are in a declining PC market,” said Jean-Louis Lafayeedney, an analyst at JI Asia in Hong Kong. Still,
Lenovo “can leverage the scale they have in PCs to develop the
mobile Internet side of the business.”

The PC maker has a team working on possible acquisitions,
Wong said. Lenovo has spoken to RIM and its bankers about
various combinations or strategic ventures, he said. Wong
declined to comment on when the company would make a decision on
whether to bid for a mobile-device maker.

Shares Climb

Wong said he would carefully consider valuations for all
potential deals and noted that RIM’s stock price has recently
risen back into the double digits.

RIM climbed 2.3 percent to $17.74 at the close in New York.
The stock has almost tripled since late September, fueled by
speculation over what a strategic review may yield and optimism
over RIM’s new BlackBerry 10 phones, set to debut next week.

RIM declined to comment on a possible Lenovo bid.

“We have no update on our strategic review at this time,”
said Nick Manning, a spokesman for the Waterloo, Ontario-based
company.

Acquiring RIM would require approval from Canadian and U.S.
regulators because of the size of the transaction and the fact
that the company operates secure mobile networks for government
agencies. Canadian Industry Minister Christian Paradis said this
week that he would prefer RIM to grow “organically.”

Automatic Review

The Canadian government automatically reviews all foreign
takeovers of companies with asset values of more than C$344
million ($344 million) to determine whether the transactions are
a “net benefit” to the country. The government rejected
Melbourne-based BHP Billiton Ltd.’s $40 billion hostile takeover
bid for Potash Corp. of Saskatchewan Inc. in 2010.

Putting RIM under Chinese ownership also would raise
security questions. The company has been wary of widening its
operations in China in the past over concerns about protecting
its sensitive networks, Chief Executive Officer Thorsten Heins
told shareholders in July.

Last October, the U.S. House Intelligence Committee urged
American companies to steer clear of two other Chinese
telecommunications competitors, Huawei Technologies Co. and ZTE
Corp., citing concerns that the Chinese government could install
malicious hardware or software in U.S. networks.

That rules out a deal for all of RIM, said Michael
Genovese, an analyst with MKM Partners in Greenwich,
Connecticut. More likely is a bid to buy the unprofitable
hardware business that would leave RIM with control of its
sensitive software and services, he said.

Hardware Business

“If the key intellectual property and software is being
kept in Canada, I think the government would sign off on a deal
for just the hardware,” said Genovese, who has a neutral rating
on RIM. “That’s more of the commodity, cost-based stuff.”

For now, the company is focused on introducing the
BlackBerry 10 lineup, the linchpin to its turnaround efforts.
RIM will unveil the phones at an event next week before putting
them on sale in February and March.

RIM could decide to sell the hardware business whether
BlackBerry 10 is a hit or not, Genovese said. If the new
operating system is successful, the company may decide to focus
on licensing it to companies such as Samsung. If it fizzles, a
sale may make sense, he said.

“If and when RIM decides that it doesn’t want to be in
hardware anymore, Lenovo would be the perfect choice to sell
that hardware business to, but I think we’re several quarters
away,” said Genovese.

Heins’s Comments

While RIM’s Heins has said he’s concentrating on BlackBerry
10, he said this week that selling the company’s hardware unit
is one of many possibilities being considered in its strategic
review. RIM shares jumped 13 percent on Jan. 22 after he made
the remarks. The company hired JPMorgan Chase & Co. and RBC
Capital Markets in May to help evaluate its options.

RIM’s enterprise-services unit, seen as its most valuable
asset, attracted interest from IBM last year, two people
familiar with the situation said in August. As no party
expressed a desire to buy all of RIM or the division that makes
its phones, the company opted to wait for the rollout of
BlackBerry 10 before making any decisions on a sale, one of
those people said at the time.

Wong said Lenovo’s first priority is to fuel its own growth
internally, though the company won’t hesitate to act if a deal
makes sense. Lenovo is positioning itself to be a “PC-plus
company,” spanning all the screens in a user’s office and home,
he said.

Profit Slowdown

Lenovo is evaluating acquisitions as it looks to
reinvigorate growth. Net income rose 13 percent in the three
months through September, ending a 12-quarter run of gains of at
least 25 percent. The company had net cash reserves of $3.6
billion as of Sept. 30, according to its earnings statement.

Lenovo this month completed the $147 million purchase of
CCE, a Brazilian maker of computers, mobile phones and tablets.
The acquisition, originally announced Sept. 5, doubled Lenovo’s
PC share in Brazil, boosting its market position to third from
seventh. Lenovo made five additional acquisitions in 2011,
including the purchase of Essen, Germany-based PC maker Medion
AG, and the PC unit of Tokyo-based NEC Corp.

The company also may buy a flat-panel TV plant in China
from Sharp Corp., the Nikkei reported last week.

Lenovo has already made inroads into the smartphone
industry. The company, which introduced its first touch-screen
handset in 2010, soared to second place in China’s smartphone
market during the second quarter of last year, from seventh
place in the first quarter.

Lenovo CEO Yang Yuanqing has said he plans to build on the
company’s dominance in PCs in new areas, including smartphones,
tablets, TVs and family entertainment.

Acquisitions are “a good tool to drive the growth and
building of capability,” he said in an interview this month.